Cold Metal Process Co. v. United Engineering & F. Co.

• Citation: 107 F.2d 27
• Decision Date: 14 November 1939
• Docket Number: No. 6700.,6700.
• Parties: COLD METAL PROCESS CO. v. UNITED ENGINEERING & FOUNDRY CO.
• Court: United States Courts of Appeals. United States Court of Appeals (3rd Circuit)

107 F.2d 27 (1939)

COLD METAL PROCESS CO. v. UNITED ENGINEERING & FOUNDRY CO.

No. 6700.

Circuit Court of Appeals, Third Circuit.

June 15, 1939.

Rehearing Denied November 14, 1939.

Reed, Smith, Shaw & McClay, of Pittsburgh, Pa., and Thomas G. Haight, of Jersey City, N. J., for appellant.

Charles F. C. Arensberg, Patterson, Crawford, Arensberg & Dunn, and Brown, Critchlow & Flick, all of Pittsburgh, Pa., for appellee.

Before DAVIS, BUFFINGTON, and THOMPSON, Circuit Judges.

BUFFINGTON, Circuit Judge.

This is an appeal from the decree of the District Court holding the agreement of June 20, 1927,¹ to be a "valid and subsisting contract" for an exclusive license to United Engineering and Foundry Company, hereinafter called United, under the Steckel patent No. 1,779,195.

This litigation between the parties has been here twice before. The first suit was filed March 7, 1931, in the District Court for the Western District of Pennsylvania for the infringement of the patent issued to A. P. Steckel, October 21, 1930, for "an improved rolling mill and method whereby superior results are obtained." The Court held that United was not guilty of infringement of the patent because it had a valid license under the patent. An appeal from the decree was taken to this court which dismissed the bill of complaint on the ground that United was "enjoying and possessing such license" under the patent and, therefore, it could not attack its validity.

The second suit was begun November 17, 1934, by Cold Metal in the District Court for the Western District of Pennsylvania for specific performance of the agreement and for an injunction restraining United from prosecuting two suits which it had begun, one in the Northern District of Ohio and the other in the Northern District of Indiana. The District Court refused the injunction, 9 F.Supp. 994, but this court on appeal in the case as then made, 3 Cir., 79 F.2d 666, — evidence of the plaintiff alone being before it, no testimony having been offered by United — reversed the decree, granted the injunction and said that the 1927 agreement could not be performed because its terms were too indefinite.

A supplemental bill was filed by Cold Metal on May 11, 1936, in the Western District of Pennsylvania. Cold Metal in this suit refused to elect either to affirm or disaffirm the agreement. It took the position that the court should rescind the agreement, but if it did not, then, in the alternative, it should grant specific performance. United moved to dismiss the bill of complaint, but the court refused the motion without prejudice. An answer was then filed and the case came on for final hearing.

The court refused the prayer for rescission and injunction, but granted the prayer for specific performance and provided in its decree for the appointment of a master to ascertain the amount of damage due Cold Metal under the agreement by United. The case is here on appeal from that decree.

Cold Metal in its bill of complaint filed October 15, 1934, charged United with fraud in several particulars and renewed them in its supplemental bill filed May 11, 1936. This is one of the main grounds on which it relies to rescind the agreement.

On the hearing on motion of Cold Metal for a preliminary injunction on the record then before us we thought that the charge of fraud might be sustained, but on final hearing, when the charges have been answered and explained by United, we have before us quite a different case.

Cold Metal says an agreement which United made with the Mesta Machine Company, hereinafter called "Mesta", on October 28, 1931, shows fraud on the part of United. In our opinion filed September 27, 1935, on the motion of Cold Metal for a preliminary injunction, we said that this was a "secret agreement" between United and Mesta; that "Cold Metal did not know of this agreement until it came out at the hearing in the proceedings by Cold Metal against United for a preliminary injunction in 1934 in equity suit No. 2506". But the learned District Judge on final hearing after full testimony by both sides has found, and we think on sufficient evidence, that Cold Metal knew of the agreement between Mesta and United before it filed the original bill on November 17, 1934. In any event this agreement did not seem to Cold Metal to be important for it was not until May 11, 1936, nearly a year and a half after it knew of this agreement, that it decided to do anything about it. Then it filed the supplemental bill seeking to rescind the agreement and at that time urged that the Mesta-United agreement was after-discovered evidence entitling Cold Metal to a rescission, but the trial judge did not think this contention meritorious and on the record as it now appears, we think he did not err.

United and Mesta are the largest builders of 4-high mills, building about 95% of the output. Mesta has never regarded the Steckel patent 195 as valid and has never paid any attention to it. Cold Metal admitted that "Mesta made quite a number of requests over a considerable period of time for Cold Metal to sue it", but for some reason it was never done, although Cold Metal did on March 7, 1931, sue United as an infringer of the Steckel patent and repudiated the 1927 agreement (Suit No. 2506). In view of this fact it is not surprising that United entered into an agreement with Mesta for mutual protection. Cold Metal itself entered into an agreement with Mesta, giving it "equal rights with United" on March 20, 1933, three years before the supplemental bill was filed, to rescind the 1927 agreement.

There is really nothing in the agreement between United and Mesta to which Cold Metal could reasonably object. In substance it provided that if the 1927 agreement was not sustained in the pending suit, Mesta would try to secure a license from Cold Metal and would give United a sublicense, but, on the other hand, if the 1927 agreement was sustained, United would, upon request by Mesta, and to the extent that it legally could, grant Mesta a sub-license on the same royalty basis that it had. But as a matter of fact no request was ever made by Mesta. The trial judge refused to find fraud in this transaction and in this we can not convict him of error.

The second ground on which Cold Metal seeks to rescind the 1927 agreement was the making of certain contracts by United with the American Rolling Mill Company, hereinafter called "Armco".

United entered into four agreements with Armco and the following provision contained in the fourth agreement of June 13, 1929, seems to be the only provision to which Cold Metal objects: "United Engineering & Foundry Company hereby agree for themselves and their representatives and assigns, to make no change in the above-mentioned contract, `Exhibit EA', with the Cold Metal Process Company (the agreement of June 20, 1927), nor to cancel the same, without previously having secured the written consent of the American Rolling Mill Company."

This provision could in no respect change or affect the rights of Cold Metal under the 1927 agreement. On the contrary it was an additional guaranty that its rights would not be changed and to this Cold Metal had no right to object. The negotiations disclose the fact that Cold Metal was anxious to have the 1927 agreement modified or rescinded and it is readily understood why it disliked the Armco agreement which prevents any modification or rescission of the 1927 agreement without the consent of Armco. All that the Armco agreement did was to assure Armco that the 1927 agreement would not be changed or terminated without its consent. This might prove to be inconvenient or disadvantageous to Cold Metal or even to United, but it does not constitute bad faith or fraud and apparently did not prove to be advantageous to United for the District Court found that United never received any royalties from Armco and that the Armco agreement did not in any respect change the 1927 agreement or prevent it from being carried out.

Cold Metal also charges that the conduct of United in two suits brought by Cold Metal in New Jersey was fraudulent.

The first suit was against the United States Steel Corporation, hereinafter called the "Steel Corporation", and American Sheet & Tin Plate Company, hereinafter called the "Tin Plate Company". This suit involved other Steckel patents than patent No. 1,779,195, commonly called the "195" patent. This appears to be the only Steckel patent in which United was interested. The Steel Corporation wanted United to assist in defending this suit in so far as it related to equipment sold by it to the Tin Plate Company, but the 1927 agreement and the guaranties of United to the Tin Plate Company were not involved in this suit and United replied, saying, in substance, that it was not interested. The president of the Tin Plate Company asked United to share in the cost of the suit. United said that it was not required under its guaranties "to defend or pay any part of the defense of the suit," yet it was willing to pay for the time its own patent counsel spent in assisting in the preparation and trial of the case. This was a perfectly natural position for United to take in view of the fact that Cold Metal three years before had sued it as an infringer of the Steckel patent '195, had repudiated the agreement of June 20, 1927 and had sought to rescind it.

On June 5, 1934, United asked Cold Metal to join in a suit against the E. W. Bliss Company in the Northern District of Ohio for the infringement of the Steckel patent '195. While United was waiting for Cold Metal to decide whether or not it would join in the suit, Cold Metal, on July 7, 1934, filed its second suit in New Jersey against the Steel Corporation and the Tin Plate Company for the infringement of Steckel patent '195 on account of equipment or material sold them by United.

On July 18, 1934, United was notified by the Steel Corporation and the Tin Plate Company that it should come in and defend...